5.25 The RAB model applies in the water, energy transmission and distribution, rail and aviation sectors. This model has a proven track record in enabling increased investment and offering certainty to investors, thereby lowering the cost of capital. It has the effect of a long term contract between consumers and investors, but with the flexibility to review and re-evaluate prices and costs at regular intervals through an independent regulator.
5.26 The Government has considered the extension of the RAB model to sectors that have an established asset base, currently face large investment requirements and are heavily reliant on constrained public financing. Sectors such as the strategic roads network and flood defences both meet these criteria. In both cases, the Government has found that implementing the RAB model will be difficult:
• in the case of the strategic roads network, the Government has ruled out the introduction of road pricing on existing road capacity in this Parliament which would be required to create an independent revenue stream to attract private finance; and
• in the case of flood defences, designing a fair user charge is challenging since it is difficult to exclude non-payers from the benefit conferred by flood defences and equally hard to match charges to benefits received. This means any charge to fund investment in these assets would need to be compulsory and unrequited and as such would be classified as tax.
5.27 For the flood defences sector, the Government has recently pioneered the Partnership Funding model described in Chapter 3 to ensure that limited public finance can secure the maximum coverage across households.